Presented by:

Akash ChitranshiMBA(IB)-1st Sem

Definition by Spencer and Siegelman:---

Economics- Theory and

Methodology

Business Management-

Decision making

Managerial Economics-

Application of Economics to

solving Business problems

The principle from economics which are basic for entire Managerial Economic are ---

Incremental/Marginal Principle Opportunity cost Principle Principle of time Perspective Discounting Principle Equi-marginal Principle

Marginal analysis implies judging the impact of a unit change in one variable on the other.

Marginal generally refers to small changes. Marginal revenue is change in total revenue

per unit change in output sold. Marginal cost refers to change in total costs

per unit change in output produced . The decision of a firm to change the price

would depend upon the resulting impact/change in marginal revenue and marginal cost

Incremental concept is generalization of marginal concept.

It refers to changes in cost and revenue due to a policy change.

Incremental concept involves estimating the impact of decision alternatives on cost and revenues, emphasizing the changes in total cost and total revenue.

Incremental cost: Change in total cost resulting from a particular decision.

Incremental revenue: Change in total revenue resulting from a particular decision

Example: A firm decided to sell it present product

with new packing.

Incremental principle may be stated as under:

“A decision is profitable one if- It increases revenue more then cost. It decreases cost more than revenue. It increases some revenue more than it

decreases others. It decreases some cost more then it

increases others.”

Helps managers in effective decision making. When you want to expand your business,

incremental principle plays a important role and help in maximizing the profit.

It will be more clear from following example There is a tyre manufacturing company which

produces tyres for a particular car of an automobile company. Now that automobile company lunches a new car and placed an additional order for tyres which are a bit different from the one the company is producing. The order say is about to bring an additional revenue of Rs. 100000 to the company.

The principles of economic are the base for the managerial economics which helps in effective planning and decision making.

Incremental principle as significance role in maximization of firm’s profit and help the managers in decision making and forward planning.

The concept of incremental cost and revenue does not arise if the business is set up afresh. It arises only when a change is contemplated in the existing business.

The incremental principle is applicable if the firm has the idle capacity and the labour that will go unutilized in absence of more profitable opportunities.